Wednesday 26th February 2014
The Pound remains quite well supported against other major currencies, however continues to fail to push any higher. This is due to the fact UK interest rates won’t be rising any time soon, and also a resurgent EU economy. If EU growth continues to gain ground, we could see the Euro start to strengthen and become more expensive to buy, which could push Pound/Euro lower again.
For those with Sterling to convert, we are currently still close to a 1 year high against the Euro, and a 5 year high against the US Dollar.
Yesterday figures published by the British Bankers’ Association (BBA) that measure the number of home loans issued were better than expected, supporting the Pound at close to 5 year highs on a trade weighted basis (mortgage approvals are seen as a leading indicator of the UK economy).
What could affect exchange rates for the rest of this week?
Tomorrow (Thursday) we have some key data from the Eurozone, and as the recovery in the EU is starting to quicken, better than expected figures could cause the Euro to strengthen and GBP/EUR rates to dip. The data includes German unemployment & inflation data, EU wide Economic and Industrial confidence measures.
Friday could be a key day for where Sterling moves in the coming weeks. The only actual economic release is a measure of consumer confidence. However at 15:30pm we have a speech by the Bank of England governor Mark Carney.
There are some further inflation and unemployment figures due from the EU at 10am. Again this could affect GBP/EUR rates depending if the figures are better or worse than forecast.
Also on Friday there are lots of economic figures from the United States that could affect Pound/US Dollar rates. We see Gross Domestic Product (GDP) figures, Consumer Sentiment, and a measure of Home Sales.
Will Mark Carney try to weaken the Pound?
Much of the Pound’s strength of late can be attributed to the fact the economy is performing well, and many think interest rates will rise next year – this has been keeping Sterling strong. It will be interesting to see what the BoE governor Mark Carney has to say in his speech on Friday afternoon, and if he mentions the subject of interest rates.
Put simply, if his comments support the view of an interest rate hike in the next 12 months, the Pound may rise. If however his comments are seen as negative for Sterling – e.g. he hints that a rate hike is some way off – we could see the Pound drop away.
In my view there is a real risk of this happening, because we have already seen the Bank of England have already warned that they do not want a strong pound due to the fact it will hurt our exports and therefore the UK’s economic recovery. So Carney may take this opportunity to talk the Pound lower.
Should you buy Euros now or wait to see if rates improve?
There is unfortunately no way to predict if rates will rise or fall, however there are ways to protect against things getting worse for you. If you need to buy Euros, then the current rate is close to the best in 12 months, and has failed to get any higher in the last few months.
We could see the rate increase further; however any doubt over the UK’s economic recovery could quickly mean we see rates drop again. If you need to buy Euros throughout 2014, then a good strategy is either a Forward contract or a Stop Loss Order.
A Forward contract allows you to fix the current exchange rate for up to 12 months into the future, but you only lodge 10% of the total you want to convert. The remaining 90% you send when you want your Euros to be transferred. This is a good way to protect against the rate dropping, removes all risk from your transaction and allows you to budget effectively. It does not however let you take advantage of any gains should we see rates go higher.
If you want to risk holding out for an improvement, then it is wise to place a ‘Stop Loss’ order. This sets a lower limit, and if the rate drops below this we automatically buy your currency for you. In this way you can still take advantage of any gains, however you also have a ‘worst case scenario’ or safety net, so that if we see a sudden drop you don’t lose out more than necessary.
Would you like to achieve the best exchange rates?
I can offer exchange rates very close to the ‘mid-market’ rate you see published on this site, which is up to 5% better than your bank can offer you. In addition to exceptional rates of exchange, I can provide a consultative service which allows you to discuss your requirement with me over the phone. In this way you can discover all the options available to you such as Forward contracts and Stop Loss orders, and make an informed choice with regards to when to fix your exchange rate.
Getting in touch costs you nothing, doesn’t obligate you in any way, and the savings you make could be very considerable indeed.